Puts Hot as Chevron Corporation (CVX) Rebound Stalls

Chevron Corporation's (NYSE:CVX) April 85 put has been popular among option buyers of late

by Karee Venema

Published on Mar 8, 2016 at 10:33 AM
Updated on Jun 24, 2020 at 10:16 AM

Chevron Corporation (NYSE:CVX) said it plans to cut its 2017 and 2018 budgets by up to 36% in order to save its dividend, which has been in place since 1926. Similar to many of its sector peers, CVX has been falling in step with oil prices over the long term, prompting many energy companies to slash or suspend dividend payments. While the news initially lifted the shares, CVX was last seen 1% lower at $89.99 amid broad-market headwinds -- and puts are edging out calls in the stock's options pits.

From a broader perspective, though, long puts have been preferred relative to calls in recent months. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for instance, CVX's 50-day put/call volume ratio of 1.68 sits in the 90th annual percentile. In other words, puts have been bought to open over calls at a near-annual-high clip.

Echoing this put-skewed bias is CVX's Schaeffer's put/call open interest ratio (SOIR) of 1.27 -- higher than 90% of all comparable readings taken in the past year. Not only does this show that puts outweigh calls among options expiring in three months or less, but it suggests near-term traders are much more put-heavy than usual.

In the past 10 days, specifically, CVX's April 85 put has seen the largest rise in open interest, with 6,579 contracts added. For those buying to open the puts, the goal is for the stock to breach the $85 level before the close on Friday, April 15 -- when back-month options expire. Should the puts expire out of the money, though, the most the option buyers stand to lose is the initial premium paid.

Speculative players are getting a deal on CVX options, too. Specifically, the security's Schaeffer's Volatility Index (SVI) of 27% ranks lower than 78% of all similar readings taken in the past 12 months, meaning premium on the stock's short-term options is pricing in relatively low volatility expectations at the moment.

As touched upon, Chevron Corporation (NYSE:CVX) has struggled along with crude oil over the long term. Since hitting an annual high of $112.20 last April, the stock has surrendered one-fourth of its value. What's more, a recent rally off its Jan. 20 year-to-date low of $75.33 ran out of steam in the $90-to-$91 region -- an area that served as both support and resistance in late 2015.

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